In a straightforward and almost unanimous opinion authored by Chief Justice Roberts, the Supreme Court reversed the Federal Circuit on both domestic (8-0) and international exhaustion (7-1).

The Supreme Court’s opinion is summed up by a single sentence early on. “We conclude that a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.” Slip Op. at 1. The underlying rationale is offered a bit later: “Patent exhaustion reflects the principle that, when an item passes into commerce, it should not be shaded by a legal cloud on title as it moves through the marketplace.” Slip Op. at 11. With these two pronouncements, the Supreme Court has in one swoop both simplified patent law and added new complexities, challenges and opportunities to the innovation ecosystem.

Impression v. Lexmark involved, at its core, the question of whether restrictions placed on a patented product could be enforced through an infringement suit–often a more viable legal mechanism for the patent owner than an an action for breach of contract.

Under Federal Circuit precedent, the answer for over two decades was yes. The theory relied upon by the Federal Circuit in decisions such as Malkinkrodt, and reaffirmed by the en banc court in Lexmark v. Impression, was that the patent owner could decide to give away only some of its patent rights when it sold or authorized the sale of a patented product. As a result, the patent owner could sue a party who violated those restrictions for patent infringement because, the theory went, the purchaser did not possess the relevant set of patent permissions–the “sticks” in the “bundle of rights” that the patent owner possessed. Thus, for example, a patent owner could place a single-use only restriction on an ink cartridge or medical device and sue for infringement if the device were reused. In short, the exhaustion rule was effectively default rule of patent law that the parties could contract around.

The Supreme Court rejected this approach, basing its conclusion on common law principles of ownership as reflected in its 1853 decision in Bloomer v. McQuewan. “For over 160 years, the doctrine of patent exhaustion has imposed a limit on [patentees’ right to exclude others from making, using, offering for sale, or selling their invention].” Slip Op. at 5-6. “When a patentee chooses to sell an item, that product ‘is no longer within the limits of the monopoly’ and instead becomes the ‘private, individual property’ of the purchaser, with the rights and benefits that come along with ownership.” Id., quoting Bloomer. While a patent owner may impose contractual restrictions, those restrictions are a matter of contract law, not patent law. “A patentee is free to set the price and negotiate contracts with purchasers, but may not, ‘by virtue of his patent, control the use or disposition’ of the product after ownership passes to the purchaser. United States v. Univis Lens Co., 316 U. S. 241, 250 (1942) (emphasis added).” Once a patent owner sells a patented product, it has obtained the patent reward and may no longer rely on patent law. Referencing its opinion in Kirsaeng v. John Wiley & Sons, Inc., 568 U.S. 519, 538 (2013), the Court observed that exhaustion has “an impeccable historic pedigree,” a backdrop against which Congress has repeatedly revised and fine-tuned the patent law.

The Federal Circuit’s error was that it started from the wrong place: interpreting the infringement statute. But “the exhaustion doctrine is not a presumption about the authority that comes along with a sale; it is instead a limit on ‘the scope of the patentee’s rights.'” Slip Op. at 10, quoting United States v. General Elec. Co., 272 U. S. 476, 489 (1926) (emphasis added). The sale transfers the foundational rights to use, sell or import the product sold; it simultaneously exhausts the patent rights:

The right to use, sell, or import an item exists independently of the Patent Act. What a patent adds—and grants exclusively to the patentee—is a limited right to prevent others from engaging in those practices. See Crown Die & Tool Co. v. Nye Tool & Machine Works, 261 U. S. 24, 35 (1923). Exhaustion extinguishes that exclusionary power. See Bloomer, 14 How., at 549 (the purchaser “exercises no rights created by the act of Congress, nor does he derive title to [the item]by virtue of the . . . exclusive privilege granted to the patentee”). As a result, the sale transfers the right to use, sell, or import because those are the rights that come along with ownership, and the buyer is free and clear of an infringement lawsuit because there is no exclusionary right left to enforce.”

Exhaustion applies regardless of whether the patent owner sells the product or a licensee–even a licensee subject to restrictions by the patent owner. “A patentee’s authority to limit licensees does not, as the Federal Circuit thought, mean that patentees can use licenses to impose post-sale restrictions on purchasers that are enforceable through the patent laws. So long as a licensee complies with the license when selling an item, the patentee has, in effect, authorized the sale.” Slip Op. at 11-12.

“In sum, patent exhaustion is uniform and automatic. Once a patentee decides to sell—whether on its own or through a licensee—that sale exhausts its patent rights,regardless of any post-sale restrictions the patentee purports to impose, either directly or through a license.”

The Court also held that foreign sales exhausted U.S. patent rights–in other words, a system of global exhaustion. This conclusion, too, was bolstered by a common law policy against restraints on the alienation of chattels.

Justice Ginsburg concurred with the Court’s holding on domestic exhaustion but dissented with respect to international exhaustion. She would hold that “A foreign sale…does not exhaust a U.S. inventor’s U.S. patent rights.”

What about Contracts? The Court’s Impression decision means that post-sale restraints on products will need to be enforced via contract rather than patent law. That matters because contract law is subject to a number of constraints, including both privity and various public policy-based limitations on enforcement. Patent law is not so limited. Outside of the core questions of infringement and validity, enforcement of patents is subject to relatively few such constraints–misuse being one rare (and rarely successful) exception. In addition, enforcement under contract law means that many cases involving post-sale restrictions will ultimately be decided by state supreme courts or other federal courts of appeal rather than by the Federal Circuit.

What’s left? Lexmark strikes a powerful blow against post-sale restrictions on products by negating the threat of infringement to enforce those restrictions. But it hardly eliminates such restrictions–to the contrary, the Court is clear that such restrictions may still be enforced under contract law. In addition, the Court’s opinion revolves around sales of products. Left unanswered is the role that patents will continue to play in non-complete transfers–licenses of a good or service rather than a sale.

He seemed to want to draw a distinction to my comment at 5 June, 9:11 am, but comes up with this weird “categories of people” notion.

His view stems from some notion that a sale just does not count as a form of consent – but tellingly, he shares no such patent law (from anywhere) that includes this “right” to prevent a legitimate secondary market.

Somehow he conjures up a patent right in which the consistent understanding of exhaustion is (conveniently) set aside.

He wants to others move on and ignore a point that he has no answer to.

A first dip is just not good enough for him – he wants his second dip, and he wants that second dip to (somehow) be a matter of a patent right – without actually explaining what patent law it is that creates this second dip right.

Umbrage to anyone who dares question (or persists in asking a penetrating question)!

Step 1: You assume that there is an immutable principle that means that all forms of so-called “double-dipping” are wrong.

Step 2: You apply that principle to imports from other markets.

Step 3: You dismiss all arguments against Step 2 on the grounds that those arguments are inconsistent with the principle of Step 1.

I guess this is why you are so resistant to arguments that point out the very good (policy-based) reasons why exhaustion, which we can all agree is reasonable within a single market, is highly undesirable when it comes to imports from other markets.

Maybe it would aid your understanding on this point if I flipped the situation on its head.

As far as I understand, the “principle” outlined in SCOTUS’ decision is not tied to any specific characteristic of US patent law. So, if (according to you) that principle is an inherent part of US patent law, should it not also be a part of non-US patent laws? If so, how are you going to convince courts outside of the US that they have been getting things wrong on international exhaustion for so many years? What black-letter law or principles of international law would you cite? … and if there is nothing that you can point to here, then what does this tell your assumption that there is an all-pervasive, immutable rule that prevents “double-dipping”?

Confused – you keep on saying “circular” when there is no “circular” there, and only consistency.

Your immediate comment regarding “Step 1” is not correct.

No one said anything about “immutable.” That being said, double-dipping IS wrong. That’s the nature of the term. You not liking that nature just does not change that nature.

I have asked for some (any) cogent reasoning why double-dipping would not be wrong, and to date, all that I have seen is reasons why people may want double-dipping. But reasons for wanting such do not – and cannot – make the act “not wrong.”

I even ask (nicely at that) for those wanting this “other view” to at least show the connection with patent law that provides a patent right directed to controlling secondary markets.

You – not unsurprisingly – remain silent on that point.

I ask for dialogue that is on point.
I welcome dialogue that is on point.
Thus, your claims of me “dismiss all arguments” is patentably false.

It is not that I am resistant to “arguments that point out the very good (policy-based) reasons why exhaustion, which we can all agree is reasonable within a single market, is highly undesirable when it comes to imports from other markets.” – on the contrary, it is because you are so enamored with your wants that you refuse to see that your “reasons” are self-serving and simply lack a tie into any of patent law, property law, or the basic meaning of exhaustion. YOU want to remove the natural consequence of secondary markets, but you have provide NO cogent legal tie as to why such actions should be allowed to subvert each of patent law, property law and the basic (consistent) meaning of exhaustion.

You act as if your “want” is enough.

It is not.

If you want to continue to try to protect something not protected by patent law with an attempt to insert inconsistencies into a basic term’s meaning, YOU have to do a lot better.

As far as your latest attempt to switch the onus to me (when it is you that is failing to make the case to insert inconsistencies), that attempt is flatly rejected as the attempt at deflection that it is.

As I have already pointed out – and directly asked of you – where does ANY patent law provide the basis for the double-dipping that you so earnestly want?

You only want to imply with your “flipped situation” that you do not have to prove your case. This is nothing more than what you have already attempted to do (to NOT prove your case).

I do not accept such a flipped situation.

The following points still stand:
meanings of terms under consideration are naturally consistent
patent law (anywhere) does not provide for a legal basis for double dipping
property law (anywhere) does not provide for a legal basis for double dipping
The “want” to have double dipping and insert an unnatural control of the natural consequence of secondary markets is the “want” that needs to be made a case for.
Making that case needs to address each of the earlier points.

NONE of this is “circular.”

Here is a hint: stop spending so much time falsely labeling the situation and attempting to spin the situation so that you do not have to make your case, and spend more time actually making your case.

LOL. The principle of exhaustion represents an exception to the rights that would otherwise be conferred by a patent. Is it therefore not putting the cart before the horse for you to ask me to cogently explain why an EXCEPTION (which, by the way, has no basis in black-letter law) does not apply to a particular situation? Is the onus not on you to explain why it does apply?

In any event, my answer is simple: a plain reading of the black-letter law leads to the conclusion that importation without the patentee’s consent is an infringement.

Now, I concede that there can be exceptions from infringement for certain acts. For example, I don’t think that anyone could argue that there should not be exceptions for private and non-commercial acts (such bringing home, for personal use, a patented item that you purchased abroad). Such exceptions would be fully consistent with TRIPS Article 30, as they would not prejudice the legitimate interests of the patentee. However, large volume, commercial parallel imports are a different question entirely and it is those with which I have a problem (for the reasons previously elucidated).

(To clarify, and as I have previously stated, I have no problem with domestic exhaustion – as there is only a single market involved.)

Do you accept the “flipped” situation now?

With regard to reasons why it would not be wrong to sell at different prices in different markets (which you rather subjectively label as “double-dipping”), you seem to have forgotten about all of the cogent arguments that myself and others on this thread have advanced, relating to the undesirable (and frankly absurd) effects of international exhaustion. I won’t bother repeating myself, as you don’t seem to be listening.

“The principle of exhaustion represents an exception to the rights that would otherwise be conferred by a patent. Is it therefore not putting the cart before the horse for you to ask me to cogently explain why an EXCEPTION (which, by the way, has no basis in black-letter law) does not apply to a particular situation? Is the onus not on you to explain why it does apply?”

No.

It is NOT an exception otherwise applied.

It is a natural item beyond patent law and belonging to property law.

as to “ a plain reading of the black-letter law leads to the conclusion that importation without the patentee’s consent is an infringement.”

Great – but I have already pointed out your error on this. The “consent” is only needed on those things that the patentee has not elsewise obtained the benefit of the bargain in the first dip.

No one is arguing about the propriety of the first dip.

You also get this part wrong:

“With regard to reasons why it would not be wrong to sell at different prices in different markets (which you rather subjectively label as “double-dipping”),”

NO ONE is arguing that a patentee can do whatever they want as to asking different prices in different markets – and that is NOT what is meant by the second dip.

Quite in fact, the Supreme Court case most definitely does NOT state that a patentee cannot set different places in different markets.

They can still do so.

What the patentee CANNOT do is grab the (actual) second dip and try to control the natural secondary market and try to apply patent rights to an item that no longer (note: this is NOT an exception, but a natural result of property law) they have any right to.

First, property law in this country is a matter of state, not federal law. If exhaustion really were a matter of property law then the SCotUS would have no power to decide the issue, and we would not have one rule for exhaustion in this country, but 50 different rules.

Second, our property law in the U.S. is mostly a matter of common law, and therefore is essentially the same as the U.K., Canada, Ireland, Australia, New Zealand, etc.. However, the Lexmark rule is not the law in any of those other countries. How, then, do you figure that this is simply a natural outgrowth of property law? To the contrary, it seems like a deformation of the common law on this point.

The “divide and conquer” approach won’t work because you cannot try to talk ONLY about property law – or ONLY about patent law – or ONLY about what the consistent meaning of the words in the concept of exhaustion mean.

And you gloss over “mostly” to arrive at a “same as” when OUR law is very much its own with the emphasis on NO restraint on the alienation of chattels (with the abhorrence of ‘hidden strings’) that is OUR common law.

And you gloss over “mostly” to arrive at a “same as” when OUR law is very much its own with the emphasis on NO restraint on the alienation of chattels (with the abhorrence of ‘hidden strings’) that is OUR common law.

When I said “mostly,” I was thinking of statutes in all 49 common law states that provide that a deed “to Greg” instead of “to Greg & his heirs” conveys the whole fee (unlike at common law, where “to Greg” conveys only a life estate). There is no distinction between U.S. common law and (e.g.) U.K. common law regarding the alienation of chattels, so your assertion that the difference in U.K. and U.S. law can be explained as a function of property law is unconvincing. Besides, as I noted above, your explanation would end up with the result that the Supreme Court’s ruling on this point is without binding effect. The New York Court of Appeals is the last word on New York property law. The California Supreme Court is the last word on California property law. There is no such thing as “U.S. property law,” so if exhaustion really is a matter of property law—not patent law—then the U.S. Supreme Court’s declarations on exhaustion are subject to reversal (without further review) by any state Supreme Court that cares to tackle the matter.

We both know that this is not the case. The reason that this is not the case, however, is because exhaustion is a matter of patent law, not property law.

As much as you want the “bumper sticker” effect of “There is no such thing as ‘U.S. property law,’” certainly aspects of property law DO rise to the level of federal law (for example, think takings law).

Confused international exhaustion is not as bad as you think when you consider that the seller is in control of when title passes. Thus seller can arrange that title passes only when it reaches the end-user; and this is going to limit the problem of mass reimportation of new products in competition with the sales of the patent owner.

I am thinking that Supreme Court had in mind the end-user who buys a product in one country and then moves with that product to a different country. You should not be put in position to be an infringer by the simple of act of moving from one location to another.

For a domestic case, SCOTUS (Taft Court), in 1926 deemed perfectly legal what seem to be fairly elaborate arrangements to ensure that title passes only when sold to the end user. See United States v. General Electric Co. 272 U.S. 476 (1926):

Ned, as you will see from my comment earlier today, I believe that moving (personally) an item from one country to another would be exempted from patent infringement – on the grounds that it counts as private and non-commercial use.

Large-scale importation and re-sale are different matters entirely, though. They are clearly commercial and so should not be exempted from patent infringement (and indeed are not in any other territory that I can think of).

Confused, no it is not different as the seller can control when title passes. Actually, the Supreme Court has already had a case in point. See, United States v. General Electric Co. 272 U.S. 476 (1926) linked by Distant.

Anon, Confused is, shall we say, a little confused where the LEGALLY BINDING “rule” comes from that prevents patentees from asserting their rights in respect of what you call “secondary markets”. If there is indeed such a “rule”, you will also need to persuade me that it is not displaced by the black-letter provisions of patent law.

You want to assert “their rights” when property law already dictates that there are no “their rights” where you think “their rights” are.

As to “what I call the secondary market” – I am NOT the one that coined that term, nor its common understanding that you seem oblivious to.

That’s just not a ‘me’ problem – that is most definitely a YOU problem.

I don’t have to persuade you on Jack – you can be (and are) free to be wrong as you ever have been – and I have already addressed – twice now – your error as the black-letter provisions of patent law that do NOT hold as you think that they do.

A European planet (see, for example, Article 31(a) of the Community Patent Convention – which, whilst it never came into force, forms the foundation for the law of infringement for many European countries). I quite forget that such sensible provisions have not been enacted in US patent law. Perhaps that is part of the problem here?

Curiously, you seem to assume that principles from common law (relating to the law of property) trump black-letter law of the US patent statute. I assume that there is a reason for this – which reason is the cause for our divergent views.

Anon, for someone who claims to welcome dialogue you sure do have a penchant for diatribe, invective and monologue.

Was it remiss of me to make a (tangential) comment about an exemption from infringement before reminding myself of what, on reflection, is a rather surprising omission from US patent law? Yes, it was.

Does that mean that I don’t know what I’m talking about when it comes to the pros and cons of international exhaustion? Well, that remains to be seen… but I have certainly heard nothing from you that persuades me that you have any better grasp of the issues at stake.

You point out that Lexmark does not involve COM patents. But why is that relevant? What is to prevent the principle of international exhaustion as outlined in SCOTUS’ decision from applying to any category of patented product / article?

A patent is intended to provide, as a “reward” for the disclosure of an invention, a monopoly of limited duration in a particular territory for the commercial exploitation of that invention. The “reward” is intended to allow the patentee to (more than) recoup his costs for the research invested in developing the invention and/or to act as a stimulus to invent.

In the light of the above, a US patent should provide the patentee with a limited term monopoly on the commercial exploitation of his invention in the US. It therefore frustrates the fundamental purpose of that patent to not allow the patentee to stop 3rd parties from doing the very thing (commercially exploiting the invention) that should be the exclusive preserve of the patentee.

The “gloss” on this is, of course, the concept of exhaustion of rights. This concept is applied when it is desired to allow free movement of goods that have been sold by the patentee.

Now, SCOTUS refers to (pretty ancient) case law and common law to support its conclusion that exhaustion applies to both domestic and foreign sales. In doing so, they effectively decide that the principles that they derive from those sources override the rights afforded to the patentee by black-letter US patent law.

But the question I would pose is why should common law principles (especially principles that have been established in cases that do not relate to international trade and/or patent law) override a fundamental purpose of US patent law when, as is the case with international exhaustion, doing so unreasonably conflicts with a normal exploitation of the patent and unreasonably prejudices the legitimate interests of the patent owner?

Should SCOTUS therefore not have considered the consequences of allowing international exhaustion to either:
(a) effectively destroy a patentee’s monopoly in the US; or
(b) restrain the actions of the patentee outside of the US (eg by obliging the patentee not to sell his product in territories where market characteristics – such as the absence of patent protection in those territories – mean that he can only command a much lower price than is possible in the US)?

What sense am I to make of your comment that “COM patents is the explicit exception that proves the rule”? A little more explanation, please.

You say that such patents are “explicitly different in a critical dimension”, but what on earth does that mean? And are you conceding that international exhaustion applied to the products of such patents would indeed be unduly harsh on the patentees? If so, can you understand why such patentees might rightfully feel hard done to by SCOTUS’ decision? If not, then what are you saying?

I notice that you tend to avoid answering the questions that I pose, seemingly preferring to “respond” by merely repeating your assertions and nit-picking where you believe that you can criticise. However, I would have a lot more respect for you if you engaged with the points and questions that I raise, rather than merely taking an “oppositional” stance. We’re not in court, after all.

To show you what I mean, I will directly answer a question that you have raised. Where is the black-letter law of infringement to which I have referred? Well, 35 U.S.C. 271 is a good place to start.

Are you able to respond in kind? If so, then how about responding (constructively) to the questions in my comment from 06:01 today?

The light has already been provided for you. You just don’t want to accept that light because you want something else – you want to have as inherent in a patent (somehow) the ability to control natural secondary markets.

The Euro COM section (which I provided, even though you were the one using that section), clearly spells out a particular feature of COM patents that just does not apply to patents in general. The section you yourself reference (Article 31(a) states : “acts done privately and for non-commercial purposes” is NOT a standard part of patent law.

For at least US patent law, infringement is infringement even if done by a private person and for non-commercial purposes – outside of certain well-delineated exceptions which do NOT come into play in our larger discussion [as those exception do not involve secondary markets].

And please, you have to do more than merely cite a law section to back up your view (given as you have been absolutely wr0ng and tried to insert a Euro COM exception as the general rule).

As to that particular section of US law that you “feel” is black letter in support of your attempted double dip and control of secondary markets – you omit understanding of the part “whoever without authority” and the understanding of the first dip that no one is arguing about.

Selling of the chattel protected by the patent IS the authority. [THAT is your first dip].

As for “Are you able to respond in kind? If so, then how about responding (constructively) to the questions in my comment from 06:01 today?”

Asked and answered – see my replies at 6:50 through 6:59, immediately above.

As to that… black letter in support of your… control of secondary markets – you omit understanding of the part “whoever without authority”…

And with good reason he omits that. The SCotUS just told us (slip op. at 9–10) last week that “without authority” is a red herring, and the CAFC’s previous attempt to ground exhaustion in that particular statutory language is the very source of the CAFC’s previous (so-called) error on this point.

Ah, by “COM patent”, you mean “Community patent” (ie something which, if you had been paying close attention to my comments, you will realise does not exist) and not “Compound patent”… which is what I had previously taken you to mean (due to my prior references to patented drugs).

No offence intended but, for future reference, it might help if you focussed a little more on the clarity of your communications.

I also think that you need to have a word with yourself about what does and does not constitute “a standard part of patent law”. If you are referring to patent laws across the world (which is the only interpretation that would make sense of your comment), then you might want to take a gander at a representative selection non-US laws. To quote a book by Hiroko Yamane on interpreting TRIPS:
“Limitations on or exceptions to patent rights, such as … acts done privately and for non-commercial purposes … exist in most countries’ laws or have been recognised by the courts”.

For example, from a quick check, in addition to European countries, China, Japan and Australia all have either limitations excluding, or explicit exemptions for, private and non-commercial use of an invention.

Seems that the exception and the rule are perhaps the reverse of what you claim, no?

At least we have made some progress, though. It is now abundantly clear to me how you interpret 35 U.S.C. 271. That is, you interpret the foreign sale by the patentee to automatically provide the requisite “authorisation” for importation and re-sale.

Whilst SCOTUS’ decision may be consistent with that view, you will permit me to have my own (principled) reasons for believing their decision on this point to be wrong-headed. It’s not that I don’t understand how they reached that conclusion, it is just that I believe they did not consider the broader context – and hence the reasons why they should have reached a different conclusion for ex-US sales.

Alas, like SCOTUS, it appears to me that you are either unwilling or incapable of considering the broader context. Thus, there is nothing left for me to do but reflect upon the peculiarities of US law – where “principles” from common law can override the statue even in situations where this produces a result that is at odds with the fundamental purpose of the statute. An odd state of affairs indeed!

YOU were the one that was not clear and that attempted to inserted a different type of patent into the conversation and you want ME to “[be] focussed a little more on the clarity of your communications.”

That’s some chutzpah there.

While I am absorbing the notion that other countries may have in fact chosen differently, such choices do NOT impact “at odds with the fundamental purpose of the statute.” when it is the US statute in the spotlight.

The bottom line remains the same: you are fighting for the ability to double-dip and merely want to control secondary markets for things that you have already enjoyed a first dip (of deciding to sell) AND impose restraints in order to control the very thing that you have ‘let go.’

Don’t get mad at me for pointing out that such is not our way.

Don’t get mad and accuse others of “not getting the bigger picture” when what you mean is that YOUR “bigger picture” – YOUR want of control of secondary markets – is NOT a US thang.

And most definitely do not say that the statute is odds with the fundamental purpose of the statute when it is not.

NO ONE is trying to take away that first dip and THAT is the fundamental purpose of the statute.

While… other countries may have in fact chosen differently, such choices do NOT impact “at odds with the fundamental purpose of the statute.” when it is the US statute in the spotlight.

But the reason why those other jurisdictions have chosen a different rule is because the rule that the SCotUS just gave us is at odds with the fundamental purpose of the statute. The point of patent laws is to incentivize. If you lessen the profits that can be earned with a U.S. patent, then you lessen the incentives that the patent laws provide, thus contradicting the original purpose of the laws.

There is no getting around the fact that the reason that inventors want patents is because patents allow the inventor to charge more for the invention than the market would bear without patents. This is inherently an anti-consumer measure, but we consumers willingly tolerate it because we know that it is the price that we pay for increased choice and variety.

It is true that we can have lower prices by reducing the scope of rights that a patent provides (as the SCotUS has just done), but fundamentally if you pay less, you are going to get less. We are now providing fewer incentives with a U.S. patent, and therefore we should expect less innovation and consumer choice.

That is a perfectly fair decision for a community to take, but the correct organ to take that decision is Congress, not the Court. If the Court had the humility merely to apply the law instead of inventing it out of whole cloth, they would have applied the same statutory stare decisis reasoning that they applied in Kimble and said “Jazz Photo has been the law for over a decade, and Congress had the chance to change it in the AIA but did not, so we will not disturb it.”

The (so-called) “first dip” is not the end of the statute, but rather a means toward the end. The end of the statute is discovery and disclosure. By allowing the patentee to set prices so as to maximize profits, one incentivizes the patentee to pursue the end (discovery and disclosure) that we as a society desire. If you really think that the first sale is the end in itself, you badly misunderstand what patents are about and why Congress enacted a statute in the first place.

If the patentee is empowered to set prices market-by-market at a profit-maximizing price, then the patentee will make X profits. If the patentee is only empowered to set one price across all markets, then the patentee will make Y profits, where Y will always be less than X in practice.

There exists, therefore, a category of R&D (call it “K”) that is so expensive that it can only be justified under a legal regime where the patentee is legally empowered to earn X profits. By switching us to a legal regime in which the patentee is only empowered to earn Y profits, the SCotUS has effectively ensured K-projects will not be pursued.

It is true that the patent laws as currently (i.e. post-Lexmark) fashioned will still serve as an incentive for that category of R&D (call it “M”) that can be profitably undertaken in return for Y profits. In that sense, Lexmark is—as you contend—not totally at odds with the purpose of the statute. If all you want from a patent statute is M-level innovation, the statute will serve that purpose. The statute used, however, to incentivize both M- & K-level innovation. Now it only incentivizes M-level and discourages K-level. That is a sub-optimal way to run a patent system, and that move from optimal to sub-optimal was given to us not by Congress (the branch, as you are typically eager to remind us) empowered to make these decisions, but rather by the Court (who really has no business making such a switch on its own say so).

You are getting lost in the weeds and are now making things up completely.

NO ONE is arguing against the First Dip.

And yet you respond as if I am arguing against the First Dip.

The “fundamental” is the First Dip, and as should be clear to you, any attempt on your part to insinuate that as some type of issue is pure obfuscation.

Slow down,
take a deep breadth,
and read again what I have actually written.

You are – yet again – merely advancing your want of control of secondary markets (the Second Dip) as some inevitable conclusion of allowing (promoting?) the First Dip.

That is simple fallacy.

Just as it was fallacy of you to think that “ability” must somehow be more than ability and must be a guarantee of geographical price distinction (regardless of any natural market effects – notably the emergence of a secondary market).

You confuse yourself with a mere “want” of not just profit, but maximized profit.

Quite frankly, there is NO guarantee of profit anywhere in patent law – at any level (“M,” “K,” “Y,” or “X”).

You seek with an emotive word “optimal” that which is NOT provided. And certainly, such is just not “fundamental.”

It is both a logical and a legal error in your position that control of secondary markets somehow must accompany the First Dip.

You are getting lost in the weeds and are now making things up completely.

NO ONE is arguing against the First Dip.

And yet you respond as if I am arguing against the First Dip.

The “fundamental” is the First Dip, and as should be clear to you, any attempt on your part to insinuate that as some type of issue is pure obfuscation.

Slow down,
take a deep breadth,
and read again what I have actually written.

You are – yet again – merely advancing your want of control of secondary markets (the Second Dip) as some inevitable conclusion of allowing (promoting?) the First Dip.

That is simple fallacy.

Just as it was fallacy of you to think that “ability” must somehow be more than ability and must be a guarantee of geographical price distinction (regardless of any natural market effects – notably the emergence of a secondary market).

You confuse yourself with a mere “want” of not just profit, but maximized profit.

Quite frankly, there is NO guarantee of profit anywhere in patent law – at any level (“M,” “K,” “Y,” or “X”).

You seek with an emotive word “optimal” that which is NOT provided. And certainly, such is just not “fundamental.”

It is both a logical and a legal error in your position that control of secondary markets somehow must accompany the First Dip.

he shares no such patent law (from anywhere) that includes this “right” to prevent a legitimate secondary market.

You are begging the question here. No one doubts that the law should not prevent “legitimate” secondary markets. The question at stake is whether a secondary market composed of gray market goods is “legitimate” (“legitimate: accordant with law or with established legal forms and requirements a legitimate government, from Latin lex, law”)? To call the secondary market thus composed is to beg the question.

Somehow he conjures up a patent right in which the consistent understanding of exhaustion is (conveniently) set aside. (emphasis in original)

What you are calling “consistent” is that the law should operate in the same way inside the U.S. borders as it operates outside the U.S. borders. By that standard, nearly all legal principles in patent law are “inconsistent.” By definition, the U.S. borders are the point at which the effect of U.S. patent law changes. Inside the borders, U.S. patents have one effect, outside the borders they have a different effect. There is nothing “inconsistent” about supposing that this commonplace state of affairs should apply to exhaustion in the same way that it applies to any other aspect of the U.S. patent laws.

“You are begging the question here. No one doubts that the law should not prevent “legitimate” secondary markets.”

In reverse, that point is not nearly as clear as your assertion. In fact, both you and Confused make statements evincing the opposite.

Secondly, I am in no way “begging the question.” You keep on wanting to use this argument, and that argument just does not fit what I am doing.

Third – you are misapplying the notion of sovereign law being different and US law applying to actions being affected by a US (property) right. Your “standard,” or at least the standard that you want to say that I am saying, is not accurate.

As to “There is nothing “inconsistent” about supposing that this commonplace state of affairs should apply to exhaustion in the same way that it applies to any other aspect of the U.S. patent laws.” – once again you are seeking to insert inconsistencies with ZERO backing. You jump from a sovereign-to-sovereign difference and then merely ASSUME that the US view on exhaustion should be different for domestic and foreign sales affecting a US property aspect.

I will say this at least: on the other thread you do start getting warmer in talking about the laws of other sovereigns and how they have decided to apply exhaustion. It would be nice though if you could provide some cites for those items, as I would enjoy learning that other sovereigns do have laws on their books as dealing with property, once that property has been willingly sold by a seller, that somehow does not provide what in the US is commonly understood that a sales of property entails.

You… merely ASSUME that the US view on exhaustion should be different for domestic and foreign sales affecting a US property aspect.

I do not “assume” any such thing. Indeed, I balk at the word “should” here. There is no “should” with regard to the choice between domestic or international exhaustion. Each community must choose for itself how exhaustion works, and that choice is legally arbitrary. There are policy implications that result from the choice one way or the other, and therefore it makes good sense to consider what policy outcomes the community prefers. Whichever policy the community prefers, however, is simply a matter of taste. There is no policy that the community should prefer over and above the community’s tastes and preferences for policy outcomes.

International exhaustion for patented products? Absurd! The whole point of patents is that they are territorial rights. This decision effectively treats the whole world as a giant single market / free trade area, which it most definitely is not.

On the practical side, the rest of the world probably has more to fear from this than the US. Parallel trading of pharmaceuticals (where drugs sold in a “low price” country are imported, re-packaged and re-sold by a 3rd party in a “high price” country) has already produced some undesirable effects in the European single market. In particular, it has caused shortages of some medicines in the “low price” countries. Because of the huge (additional) volume of drugs that is now likely to travel west over the pond, such shortages are only likely to get a lot worse.

It looks like the Supreme Court just did not think this one through. Also, it seems to be yet another example of SCOTUS (as in killing the Myriad claims on the wrong grounds) failing to understand the broader perspective in which US patent law operates.

Again with the “big mistake” conclusion without the cogent legal “means” to get to that conclusion.

You know, my daughter also tugs on my sleeve just to get my attention, even though she does not have anything of substance to tell me. That said, she is much cuter than a one-eyed, blue medusa-duck, so one is more inclined to excuse the pointlessness of the effort when she does it.

That said, if you really want an argument with which to engage, I have given you one in 14.2.1.1.1.2. Why not attend to that*, instead of wasting your time on nonsense like 23.1.1?

* To be fair, it is possible that you have already penned a brilliant take-down of my 14.2.1.1.1.2, and I simply do not see it because of the confounded filter. If so, I will simply hope that it appears sometime before this thread goes dead, when its emergence will go unnoticed.

The principle of exhaustion of IP rights usually only applies within a single market. This is important because only within a single market are there (reasonably) consistent laws that are overseen by a common court, as well as consistent regulations pertaining to the marketing of the patented goods.

The parallel that SCOTUS draws with copyright is therefore particularly unconvincing. Unlike patents, there is no need to apply for CR protection (hence “global” CR protection is pretty much automatic). Also, unlike some patented goods (such as pharmaceuticals), copyrighted works are not heavily regulated or subject to various national (reimbursement) price controls. This means that there are good reasons to conclude that the “global” market for patented goods has very different characteristics to the “global” market for copyrighted works – which characteristics demand different treatment.

This conclusion (again!) calls into question whether SCOTUS’ decision is consistent with TRIPS.

Article 28(1)(a) of TRIPS indicates that the patent proprietor shall have the right “where the subject matter of a patent is a product, to prevent third parties not having the owner’s consent from the acts of: making, using, offering for sale, selling, or IMPORTING for these purposes that product”.

Whilst Article 30 of TRIPS does allow for some limited exceptions to this right, it seems to me that it would be hard to argue that allowing for exhaustion of rights across numerous, distinct (and very different) markets hardly represents a “limited” exception… and certainly not one that does not “unreasonably prejudice the legitimate interests of the patent owner”. After all, as others have pointed out, allowing for global exhaustion of rights prejudices the interest of the patentee in marketing his product in another country where he is unable (eg for reasons relating to price regulation or earlier expiration of patent protection) to obtain a price anywhere near as high as that for his product in the US.

In conclusion, whilst SCOTUS may well think that it is simply applying “consistent” principles, it has failed to consider that there are good reasons (including obligations under TRIPS) why the principle of international exhaustion should never be applied to patents.

You are incorrect in wanting to constrain the meaning of the term to only mirror a Sovereign’s internal laws.

The parallel to copyright does not “fail” or is otherwise not germane based on this. There is a difference in codification, but that codification does not reach where your argument want to reach.

The fact is that you want to acknowledge the presence of global markets, and then turn around and be selective about the meaning of a term, want to insert an inconsistency in the meaning of that term, and then want to pretend that THAT inconsistency needs no special treatment. Demand special treatment? Just because you want it so? That is simply not there in the meaning of the word itself.

ALL that you inconsistency does is protect (or tries to protect) an aspect that NO sovereign protects with patent law: the control of secondary markets.

TRIPS is perfectly fine with the consistent use of the word “exhaustion.” Put simply: you want to double dip – and that my friend is NOT an interest of the patentee that flows from being a patentee. There is no prejudice of something that never was there in the first place (there being operative from patents).

Given that SCOTUS is relying merely upon a “principle” (ie a judge-made concept and not black-letter statute), I would have thought that it would have been perfectly reasonable for the court to consider whether it is justified to apply (unchanged) a principle developed in one context to different rights that have different considerations (and legal constraints).

With this in mind, why is it that you think that the principle of exhaustion is somehow cast in stone, such that it must be applied in exactly the same manner no matter how different the legislation governing the rights (and associated products) in question?

“TRIPS is perfectly fine with the consistent use of the word “exhaustion.””

How is that? Would you care to explain by reference to the provisions of TRIPS (and preferably avoiding yet more pointless repetition of the phrase “double-dip”)?

It is a perfectly legitimate interest to sell a patented product at a price that a national / regional market will bear. Thus, forcing a patentee to choose between selling at only one (global) price or selling in only one market (a choice rendered inevitable by international exhaustion) prejudices that legitimate interest.

That you feel the double dip remark to be pointless shows that you have not considered what that point means

Please do me a favor and show that you understand three things that come along with that so-called pointless comment.

1) show that you understand what a first dip is in the benefit of the bargain of an entity selling an item for the price that the entity fully agrees to;

2) show me that you understand the concept of a secondary market, and (importantly) show me where you think it is in patent law that control over a secondary market is made to be a right of the patent right; and finally

3) show me where in TRIPS this (at this point non-existent) patent-induced ability to control secondary markets is stated as requiring a non-consistent meaning to the word “exhaustion.”

This ALL resolves down to an attempted control of secondary markets.

No one is arguing against a first dip.

No one is arguing against “It is a perfectly legitimate interest to sell a patented product at a price that a national / regional market will bear.”

But your own “logic” of the choice of the second somehow being some right to control the secondary market (your aversion to the term “double dip” notwithstanding), as somehow being violative of some right is simply a fallacy.

As I have mentioned all along, I “get” why people may want to be able to control secondary markets.

I really do.

But that is just not what any patent law anywhere has ever included in the scope of patent rights.

Please read more carefully. It was pointless REPETITION that I would prefer you avoid. I get your complaint about “double-dipping”, and so would like you to move on.

With regard to your numerous references to a “secondary market”, you seem to use that phrase to cover both re-sale within one market (to which I have no objection) and importation of product from one market into another. Have I understood you correctly on this point? If so, I would take issue with your underlying assumption that there is a right for third parties (without the consent of the patent proprietor) to buy a patented product in one market, export it to another market and re-sell it there.

Unless you are referring to a single, regional market (such as the European Single Market), there really is no black-letter provision of patent law or (inter)national law that affords third parties such a right. Given that no such right exists in law, then it is not correct to assume that there is a “market” for 3rd parties that involves the international import / export of patented goods.

In this context, your reference to the ability of patentees to control a “secondary market” makes no sense – as there is no basis in law for the so-called “secondary market” in question.

TRIPS provides a patentee with a right to prevent importation (without his consent) of a product covered by his patent. Notable by its absence is any qualification in TRIPS regarding the source of that product. Thus, logically, the product in question could be sourced from the patentee in another country… but (under TRIPS) that would not take away the right of the patentee to prevent importation to which he does not consent.

Now, relying only upon the provisions of TRIPS (and their interpretation according to the Vienna Convention), can you please explain to me how it is that SCOTUS’ judgement is consistent with TRIPS?

“what is protected with the patent exclusion of imports is imports by infringers (i.e., imports of NON-secondary market items)”

What kind of twisted logic is that? It is only ACTS that infringe, not categories of people. In other words, people can only be categorised as “infringers” based upon their acts, and not upon any other form of status. It is therefore plain as the nose on your face that someone who imports a patented product without the consent of the patent proprietor is an “infringer” under Article 28(1)(a) of TRIPS.

Frankly, I am beginning to realise that you are impervious to logic. I mean, what basis do you have for your assertion that sale by the patentee in one country exhausts the patentee’s rights in all other countries? The answer, of course, is the SCOTUS decision and your adherence to the “principles” outlined in that decision. But it is precisely this “basis” that I am arguing is inconsistent with an international agreement (TRIPS) that the US has ratified. It is therefore illogical (and also at odds with the Vienna Convention) for you to point to that case law and those “principles” as a foundation for interpreting provisions of TRIPS.

Let me spell it out: you need something other than US case law (and alleged “principles” thereof) upon which to build your arguments… as otherwise they become entirely circular.

There is nothing circular in being consistent in a basic meaning of the word “exhausted.”

Once again, you are the one (merely) wanting something different, something NOT consistent, and something that only serves to defend something that NO patent system anywhere includes as a patent right.

Maybe you can start there: show me one patent system that retains all rights after a sale.

Let me ask you, Curious, whether you would seriously sue for infringement an end-user who purchased an item in one country and then took it to another country?

I do not speak for Confused, but I can say for myself that I am not troubled about the guy who buys a patented wristwatch for $200 in Mexico, and brings it home on his wrist to the U.S., where it would ordinarily retail for $1200. This sort of one-at-a-time importation is never going to affect the market price in the U.S. to any material extent. I am more concerned about gray market dealers who operate at scale.

Curious, you have to understand that the principle involved here is consists of sales to end-users. I am not certain that the principal extends to distribution channels were title may not pass until delivery. Also, the patent owner does not have to sell at all to any distributor known to be dealing gray market goods.

Emphasizing once again, I think the decision only applies to sales end users.

(1) Do you mind pointing to what language in the opinion leads you to that supposition? I confess, I did not see anything that appeared to me to so limit the holding.

(2) If Lexmark really is that limited, there are going to be some really steep damages awards emerging in the next few years, as gray market importers move existing overseas inventory into the U.S. market.

I expect that the effect of this decision on U.S. prices of most patented goods will be fairly minimal in the long term. The U.S. market is simply so much more valuable than (e.g.) the Mexican market that it will make more sense to take the loss in the Mexican market by raising Mexican prices to equal the U.S. price, than to lose profits in the U.S. market by keeping a lower price in Mexico.

In the short term, however, there are untold piles of inventory outside our borders on sale at lower prices. There will be a rush of gray market wholesalers to buy up this inventory and bring it into the U.S. market, where they can make a tidy profit underselling the patentee’s own retailers. If it really is the case that gray market wholesalers are not covered by this decision, they are going to be in for a rude awakening.

This conclusion (again!) calls into question whether SCOTUS’ decision is consistent with TRIPS.

Article 28(1)(a) of TRIPS indicates that the patent proprietor shall have the right “where the subject matter of a patent is a product, to prevent third parties not having the owner’s consent from the acts of: making, using, offering for sale, selling, or IMPORTING for these purposes that product”.

I happen to agree that domestic exhaustion is the better rule, but I confess that I do not find the TRIPS argument convincing. It proves too much. The strong reading you are giving to the TRIPS text would forbid not only international exhaustion, but also domestic exhaustion.

You call out “importing” for special attention, but “selling” is also in that list. If it violates TRIPS to allow the importation of goods sold abroad, then presumably it also violates TRIPS to permit the sale of goods sold within a jurisdiction’s own borders. After all, if I buy Ford Cmax in Arkansas and then turn around and resell it in Florida, I am a “third part[y] not having the owner’s consent… selling…” the patented hybrid engine.

I think that we have to read the TRIPS language against the background assumption of an implicit “except where exhaustion applies.” To the best of my knowledge, every TRIPS signatory has some sort of exhaustion principle in their law. It would be strange to imagine that they all willingly signed on to do away with exhaustion, and yet none of them has taken the least step to do so.

Good point. Why quibble over the implications of the quoted portions of the TRIPS agreement to exhaustion, when there is another TRIPS article that addresses exhaustion explicitly.

Article 6

For the purposes of dispute settlement under this Agreement, subject to the provisions of Articles 3 and 4 nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights.

In other words, there simply is no standard (domestic, regional, or international) installed by the TRIPS agreement. This issue is explicitly reserved for national consideration, so it is untenable to argue that our Court might just have put us out of compliance with TRIPS.

I can agree that no one can force the US to change its law by using dispute resolution at the WTO. However, this does not change the fact that there is a plain reading of TRIPS that contradicts the “logic” of the SCOTUS decision on international exhaustion.

(Here’s a hint: you overlook the meaning of the word “consent” in the TRIPS item you refer to:

“Article 28(1)(a) of TRIPS indicates that the patent proprietor shall have the right “where the subject matter of a patent is a product, to prevent third parties not having the owner’s consent from the acts of: making, using, offering for sale, selling, or IMPORTING for these purposes that product”.

Consent comes from the plain (and consistent) meaning of the word “exhaust.” I am not the one trying to go in circles here Confused – I am the one merely using the normal meaning of a term in a consistent manner and NOT trying to (implicitly or otherwise) insert some NON-consistent meaning based on a location of sale that is nowhere found in the meaning of the term.

NONE of your “reasons said above” help you because all of your “reasons said above” rely on you inserting the non-consistent meaning and then turning around and pretending that such an insertion is “normal.”

All of your bellyaching and wanting me to do more, when all I am doing is relying on a consistent meaning of a term is downright hilarious as YOU are the one that need to do more in order to show why a non-consistent insertion should be entertained.

And yes, I am still waiting for you to address the point that you don’t like repeated, but nonetheless, refuse to address.

That’s just the trouble. You have not shown Confused (or anyone else) any such thing. It is not a matter of not liking it. The quod est demonstrandum simply has not been adduced.

You have brought a goat and called it a dragon. Several of the rest of us have looked at it carefully and can see only a goat. Your response has been to shout and spit and pound the table insisting that it really is a dragon, and that we must be blind, or else that we are operating in bad faith to gainsay the assertion.

Well, fair enough. It is hard to say whether you really think you have a dragon, or whether you just want to see if you can cow someone into submission by force of bald assertion. One way or another, there are several people here who simply will not be fooled into thinking that the goat is a dragon.